Estimating X-Cal Resources Fair Market Valuation
By Dennis Boyko
Created on: May 9, 2010
Current version 0.31 : June 29, 2010 -- note regarding Paramount Gold and Silver business combination
Metrics have been updated with closing prices available on 2012-Feb-07.
Fair Market Valuation Summary - 2012-Feb-07
Projected fair market stock price for , based on the current NI 43-101 resource disclosures for the Sleeper Gold property and the capital expenditure estimates from the November 2009 Prelimenary Assessment, is C$0.00. The actual closing stock price was C$.
On June 22, 2010, X-Cal Resources and Paramount Gold and Silver announced a business combination. This blog has not been updated to account for the Paramount Gold and Silver combination. A view of the valuation of the combined companies is available at Paramount Gold and Silver Valuation Blog.
Details
At the close of trading on and based on NI 43-101 reports available in May 2010, the current and projected Market Capitalization per ounce of Gold Equivalent for , were:
current market valuation: US$0.00 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$96.67 per ounce of Au Eq.
in situ metal value is % from gold and % from silver. is being valued at 100% of the Gold Producer Valuation Line. This valuation is reasonable since Kinross, one of the gold miners used to produced the Gold Producer Valuation line, has 93.1% of its in situ metal value from gold and 2.6% from silver.
The average ore value per tonne was US$.
Projected fair market stock price for is derived using the projected fair market valuation at start of production of US$96.67 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$86M -- based on the Preliminary Economic report from November 2009. This estimate will be updated when a feasibility study or further information is available.
Risk Premium: 40% applied to the capital expenditure has been set to reflect the worst case +/-30% capital cost expected range of accuracy as given in the Prelimineary Economic report plus an additional risk premium.
Discount Factor: 15% -- set to account for the possible lose of in situ metal from mine design, metalurgical recoveries and like factors. See Discussion below for further rational on this choice for the discount factor.
The discounting of the future gold metal prices after the start of production is already fully accounted for in the Gold Producer Valuation Line which is derived from current day market prices and company fundamentals from a number of established gold producers.
Discussion
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The Sleeper Gold property is in a well established mining area and includes the historic Sleeper open pit mining site as can be seen from Sleeper Summary Images Presentation presentation available at the company website (the current Google map view of the property is also shown at the bottom of this page).
The historic Sleeper was a profitable operation.
Per the November 2009 NI 43-101 report, the Sleeper Gold resource estimate is based on a total of 2,328 holes from an overall data base of 4,131 drill holes. Dr. Richard Stilltone, in EXPLORATION POTENTIAL OF THE SLEEPER PROJECT, NEVADA: AN UPDATE prepared for X-Cal, observed:
The Facilities resource is judged to be open in several places, most notably to the north beneath and immediately alongside one of the old leach pads. Step-out drilling is recommended in an attempt to expand the existing resource. Infill drilling may also be required, and could perhaps be designed in such a way as to determine the continuity of several bonanza-grade gold vein intersections.
The open nature of the Sleeper Gold deposit is discussed on p. 144 of 395 of the November 2009 SLEEPER GOLD PROPERTY PRELIMINARY ECONOMIC ASSESSMENT 2009 available at Sedar:
It is estimated that approximately only half of the available drill hole assay data is
inside the current NI 43-101
Once a geologic interpretation is available, these unused drill hole assays may
represent an opportunity to expand the current NI 43-101 resource base and
potential mineable resources.
Based on the large data base of drill holes on which the estimate is based and given that the resource was observed to be open, the 15% discount factor is believed to be very reasonable.
This blog does not assign any value to the other gold properties held by the company. This is clearly a conservative approach since the other properties are being explored. Similarily, the assumptions used for the capital cost expenditures were set conservatively. In summary, the projected fair market stock price is believe to be a reasonable and fair valuation.
Gold Explorer-Producer Valuation
Gold Key:
AEM
| AND
| AUQ
| G
| K
| RIO
| TVI
| YRI
Place mouse over each key symbol to read graph values.
If the key symbol is shown in bold, click to view the GoldMinerPulse valuation blog
for that company.
For the chart above, has an average ore value per tonne (y axis) of US$ and a Market Capitalization per ounce of Gold Equivalent of US$0.00.
The Gold Explorer-Producer Valuation Hypothesis is based on the data driven observation that a company's market capitalization per ounce of gold equivalent tends to rise based on the current valuation of the metals contained in an average tonne of ore. For developer/explorers, it is also assumed that the true Explorer-Producer Gap should be large enough (but no larger) to cover the expected future capital expenditures, risk premiums and time discounts.
The original motivation for the Gold Explorer-Producer Valuation Chart was developed in Junior Gold Explorer Valuation Observations. Application steps and the generic factors that need to be considered in applying this valuation method are further described in Gold Explorer-Producer Valuation Exceptions.
This blog is based on the stock fundamentals and current metal prices as documented in the X-Cal Resources Metal Valuation Report.
Updates
The Gold Explorer-Producer Valuation chart is updated after the close of trading using closing stock prices, closing spot market metal prices, fully diluted share counts, and NI 43-101 resource and reserve disclosures.
Last update was for the market close on 2012-Feb-07.
Caution
This GoldMinerPulse blog is presented for the sole purpose of illustrating how GoldMinerPulse per company metrics may be useful in judging valuation of individual gold and silver mining stocks. This blog should not be considered as investment advise. Anyone using this blog should become familar with the GoldMinerPulse metrics and the underlying assumptions to access their usefulness.
Limitations
The Gold Producer Valuation Line is shown to be linear with respect to increasing ore value.
, with an average ore value of US$ per tonne, is believed to be within the upper edge of the linear range of the Gold Producer Valuation Line.
Research Links
X-Cal Resources web site.
X-Cal Resources NI 43-101 Metal Valuation Report for the company metrics derived using the last close of trading data.
Canadian Insiders for insider trades on the TSX
X-Cal Resources discussion forum: StockHouse
StockCharts.com for price charts.
Sedar for all TSX regulator filings. Sorry but you'll have to navigate the Sedar site as they do not allow direct links to company specific lists of document filings.
More about some of the Economic Geologist working with the company on the Sleeper Gold property: Dr. Richard Stilltoe, Larry Kornze and Dr Ken Snyder.
About Links
I have listed the best of links for anyone interested in researching further. If you have a blog or site with specific pages, please send me the link for review and I will include your work in the link section as appropriate.
Comments?
Got comments? Questions? Please Talk Back.
Area Excluded from the Current Sleeper Gold NI 43-101 Resource
